New Money Rules for Financial Security - #7. Retirement

[This post is written and copyrighted by FIRE Finance (]

Contemplating on Money RulesOne of the questions that needs to be addressed now is the impact of the present recession on our retirement plans. So far a bull market and a portfolio designed according to basic money rules gave many the hope of retiring early. But the onset of a bear market and the current recession have erased a significant amount of wealth from the portfolios of most Americans.

The notion that our money could work for us rather than the other way around is perhaps no longer valid. And with it, the early retirement plans of many have been dealt a hard blow. According to EBRI (Employee Benefit Research Institute), long-tenured workers nearing retirement have seen their 401(k) accounts shrink an average of 30% over the past 14 months.

Rule #7: Retirement
Old thinking: Retiring early is a prize.

New rule: Retiring early is a problem.

Retire EarlyOur take: We are die hard fans of early retirement and this blog was born to document our journey towards FIRE.

Early retirement is still a possibility if we choose to work part time and live at a place with a low cost of living index. We feel that by working part time at a job or our own side business and by creating passive income streams we should be able to cover the cost of health insurance and a part of our living expenses. That by itself will reduce withdrawals from our nest egg thus extending its life.

If we can limit our withdrawals from our nest egg to 0%-2%, till medicare and social security kick in, early retirement is still a possibility. All we need to do is keep our portfolio intact against inflation and grow it a rate to cover our 0%-2% withdrawals. That will preserve the buying power of our nest egg as well as keep our capital intact.

On an average if the inflation is 3% then our nest egg needs to earn a steady return of at least 3% to 5% to beat inflation and cover our withdrawals (max 2%). At present, this appears to be a much more realistic goal than one in which a nest egg has to earn a steady 8 to 10% on an average (based on market performance in the past) and has an annual withdrawal rate of 4%. Earning such high returns year after year might not be possible in immediate future :(.

All is not lost yet. While large U.S. stocks have been down in the past 10 years, U.S. corporate bonds earned 4.6% a year for the same period. That means there is hope for early retirement :). Keep your entrepreneurial spirit at its peak and you'll find a way out of the rat race and corporate America.


What are your views and experiences about your plans for retirement/early retirement with respect to keeping your financial security intact in the immediate present? Kindly leave a comment.

This brings us to the end of our series on our take on The Seven New Money Rules on Financial Security. We hope that you liked it and are looking forward towards your feedback :).

Image Source(s): iStockPhoto

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